Tax debate expected to dominate session’s third week

LITTLE ROCK — As the Arkansas Legislature’s session enters its third week, the debate over tax cuts is expected to continue dominating discussions at the Capitol.

“Right now the focus is to get these tax issues settled,” Senate Majority Leader Jim Hendren, R-Sulphur Springs, said Friday. “After that I think we’ll start to see some other issues percolate up.”

Low-income tax cut

Hendren said that on Monday he plans to present Senate Bill 115, the governor’s proposed $50 million income tax cut for low-income Arkansans, on the Senate floor. The measure sailed through the Senate Revenue and Taxation Committee on Wednesday and has 17 co-sponsors in the 35-member Senate.

A matching House version of the bill, House Bill 1159 by House Majority Leader Mathew Pitsch, R-Fort Smith, sailed through the House tax panel Thursday. Pitsch said he plans to seek a vote on the House floor Monday.

The proposed tax cut would take effect in the 2019 tax year. In addition to changing the tax brackets for Arkansans earning less than $21,000 a year, the proposal would create a legislative task force to recommend future tax reforms.

On the same day that the House Revenue and Taxation Committee advanced Pitsch’s bill, it also advanced HB 1161 by Rep. Warwick Sabin, D-Little Rock, which would create an earned income tax credit for low-income working families equal to 5 percent of the federal earned income tax credit, at an estimated cost to the state of $40 million a year.

Sabin says his proposal would be more effective than the governor’s plan in providing tax relief while also encouraging work, lifting people out of poverty and stimulating the economy. He said Friday he was waiting to hear from the House leadership when he would get to present his bill in the House.

Sabin and other supporters of his bill have said they would like to see a compromise between the two different approaches to providing tax relief to low-income Arkansans.

“Talking with my colleagues in both houses of the Legislature, it seems like people would like to see elements of both plans achieved,” Sabin said last week.

Gov. Asa Hutchinson issued a statement Thursday that did not signal an interest in compromising.

“I am pleased with our tax package as is,” the governor said.

Asked if he thought a compromise could be reached, Pitsch said Friday, “By Monday? Probably not.”

Tax break for veterans

Another part of the governor’s tax package, an income tax exemption for military retirement benefits that is estimated to cost the state about $13 million a year, is expected to be heard in committee this week.

Sen. Jane English, R-North Little Rock, said she expects to present a bill containing the proposal, SB 120, in the Senate tax committee on Wednesday. Rep. Charlene Fite, R-Van Buren, said she expects to present a matching House bill, HB 1162, in the House tax panel on Thursday.

The bills also would reduce the soft-drink syrup tax from $2 per gallon to $1.26 per gallon, which is estimated to cost the state a little more than $6 million a year.

To offset the costs of the veterans’ tax break and the reduction in the syrup tax, the measures would repeal a state income tax exemption on unemployment compensation, to mirror federal law; apply the state sales tax on 100 percent of the cost of manufactured housing instead of the current 62 percent; and apply the full state sales tax to candy and soft drinks instead of the current 1.5 percent rate for groceries.

Hendren said Friday the measures likely will be amended to remove the provision regarding manufactured housing, which has met with resistance from many legislators. The provision may be replaced with a repeal of a sales tax exemption on digital downloads of books, movies and music, he said.

The revenue that would be generated by repealing the exemption for digital downloads is “very close” to the revenue that would be generated by repealing the exemption for manufactured housing, Hendren said. Some adjustments to other parts of the bills may be necessary to ensure the proposal is revenue-neutral, he said.

Other bills

Other action expected this week includes:

The House is expected to vote on HB 1032 by Rep. Andy Mayberry, R-Hensley, which would ban the abortion procedure known as dilation and evacuation.

The Senate Public Health, Welfare and Labor Committee may consider HB 1033, also by Mayberry, which would use a portion of the state’s tobacco settlement money to reduce a waiting list for home- and community-based services for the developmentally disabled.

The Senate is expected to vote on HB 1058 by Rep. Douglas House, R-North Little Rock, which would amend the state’s constitutional amendment on medical marijuana to eliminate a requirement that a doctor recommending the drug declare that its potential benefits likely would outweigh its risks.